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Small-Cap Confidential
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Cabot Small-Cap Confidential Special Bulletin

I’m maintaining my rating of Hold Half for the time being. I’ll keep a close eye on the stock and will update you again in Friday’s Weekly Update.

LeMaitre Vascular (LMAT) Reports Q4 and Full-Year 2016 Results

LeMaitre Vascular (LMAT) I recommended selling half your position in LeMaitre in early November 2016 at around 23.48, for a 48% gain in six months. Today, shares are trading around 22.05, roughly 10% lower than yesterday’s close of 24.59, after reporting earnings. That means our current gain on our remaining position is about 38%, representing performance that’s 12.5% better than the small-cap index over the same holding period. Earnings were just OK, which is why the stock is selling off today. Long term, the story remains intact. Short term, there could be some weakness. But I think we might get a better price if we hold on to the stock a little longer (or at least, not much worse). I very much dislike selling into post-earnings weakness unless there is some major fundamental issue, which there isn’t in this case. So I’m maintaining my rating of Hold Half for the time being. I’ll keep a close eye on the stock and will update you again in Friday’s Weekly Update (if not sooner).


LeMaitre reported results that came in just shy of expectations. But forward guidance was better than expected. In Q4, revenue was up 14% to $23.3 million ($290,000 below consensus) and EPS was flat at $0.13 ($0.02 shy of consensus). It sounds like the miss was related to three short-term factors; foreign exchange fluctuations (yen and Euro), lower than expected sales of valvulotomes, and around a $50K difference in LeMaitre’s guidance versus analyst consensus. None of this is a big deal. For full-year 2016, revenue was up 14% to $89.2 million and EPS was up 30% to $0.55. Guidance for 2017 includes revenue growth of 11% to $99 million and gross margin of 71.5%, which would be an improvement in Q4 gross margin of 69.5%. Fourth-quarter gross margin was hurt by the slowness in valvulotomes and higher-than-expected sales overseas, which tend to have a slightly less favorable margin profile. Some manufacturing inefficiencies also contributed. Again, no big deal here—this should all normalize in the coming quarters. The company also increased its dividend by 22% to $0.055 per share given that 2016 cash from operations reached $16.9 million. Management said the dividend hike doesn’t mean there are no good acquisition targets—its plan is to do both. It has increased sales reps by 10 to 96 total, and is selling direct in 21 countries through nine sales offices. It doesn’t expect much more sales rep growth in 2017 (maybe one to three more) since management wants to make sure that it can hit its annual goal of at least 10% revenue growth and 20% operating growth before investing in another round of sales rep hires.

It sounds like the XenoSure biologic patch continues to drive growth, with sales up 42% in Q4 and up 41% in 2016. LeMaitre has held onto a number of accounts that it picked up when a competing product from Baxter was temporarily pulled off the shelf due to manufacturing issues. The company has stated in the past that biologics are hot, and it completed the Onniflow (2014) and ProCol (2016) acquisitions to help build its biologics profile. In November 2016, we learned that LeMaitre purchased Restore Flow Allografts. These acquisitions have helped sales of biologics reach nearly 30% of total sales in Q4 and have inspired LeMaitre to build a dedicated clean room (roughly 8,000 ft.) in Burlington, Massachusetts for biologics. This will bring in-house some of the manufacturing operation that’s currently in Australia, California and Chicago. The company wants to do more acquisitions in the $10 million to $20 million range.

Shares opened lower this morning and a few orders even went through at around 20. That’s over 15% below yesterday’s closing price. Shares are now down around 10%, and trading volume is significantly lower than it was this morning. LeMaitre has $5 million in authorized buyback that it could put to work, and I suspect it probably made some purchases this morning (it should have, if it didn’t). My best guess is that shares will close down around 10% today then rebound 2% to 5% tomorrow. Given that I’m not concerned with the fundamentals here, I recommend holding your shares through the end of today. I’ll provide updated guidance either tomorrow (Thursday) or in Friday’s Weekly Update. We’re outperforming the small-cap index by 12.5% with our current gain of around 38% with LeMaitre, so while today’s selloff is unfortunate, it’s not reason to abandon ship all at once. HOLD HALF.